The role of payments in fighting fraud in esports betting

Interest in esports has skyrocketed in the past two years, so much so that the market has become a high growth area for both traditional sports betting and esports specialist platforms. But the rapid increase in markets and liquidity has also captured the attention of fraudsters looking for the easiest opportunity to exploit. So what can operators do to protect themselves from becoming a target for bad actors?

We interviewed Warren Tristram, SVP Sales, Head of Gaming, Lottery and Esports, to get his perspective on this critical threat to the long-term success of esports betting.

We know there’s tremendous potential for growth in esports betting. Unfortunately this can also lead to more bad actors opening betting accounts to commit betting fraud. Has this threat been measured?

Esports was already one of the fastest growing sectors of the sports betting industry pre-COVID-19, and the pandemic was another huge jolt in the arm for the sector. There are two reasons for this: firstly general interest in gaming increased due to the impact of lockdown and the limit of recreational activities, and secondly the focus on esports betting markets in the initial stage of the pandemic when all other sports were postponed.

To quantify some of that growth, reports have claimed the overall percentage of sport betting account holders that were betting on Esports rose from 2% to 27% in a single week in March 2020, and there was a 40x growth in esports in April 2020. That same report estimated total betting volume of Esports could reach $15bn in 2020, up from just $5.5bn in 2016. So the increase is significant.

But fraudsters were able to take advantage of the spike in traffic at the same time. The esports sector recorded a 270% increase in suspicious betting activity between 2019-2020. This was partly because the esports betting markets were ‘the only show in town’ for prolonged periods of that year and partly because the increase in betting traffic made it easier for bad actors to hide in plain sight. Furthermore, due to the immaturity of the market and a lack of visibility and/or understanding of data, fraudsters believed their efforts were more likely to go undetected.

Is there a difference between esports betting and traditional sports betting that makes it more attractive to fraudsters?

In many ways esports betting and traditional sports betting are similar, which is why there is such a strong crossover in operators focusing on these markets. The biggest sports betting platforms in the world are heavily investing in esports and at the other end of the spectrum betting platforms such as Rivalry, Midnite and GG.Bet that launched specialising in esports betting now also offer traditional sports betting.

But there are differences as well, and some of these are attractive to fraudsters. Take the volume of markets as an example. There is basically no limitation to the number of esports games which is different from other sports. The lack of centralized bodies running esports and regulations around who is eligible to host tournaments is another.

What are the consequences for esports platform of being persistently targeted by fraudsters?

The cost of fraudulent transactions, particularly chargeback fraud, is high. This is because it not only involves the financial penalty incurred by the chargeback and potential scheme fines if your chargeback level exceeds an acceptable limit, but the resource costs of investigating and challenging a high volume of chargebacks as well.

And if your fraud rate continues to climb, you even run the risk that you will not be able to find a payments partner to work with you in the future.

So from a payment services provider perspective, how can you fight this unwanted attention from fraudsters?

It is all about putting the right technology and risk management protocols in place to protect the operator without damaging their product or bottom line. We’re always looking to maximize conversion rates in a way that protects the players and the operators. That means processing the 98% of transactions that are legitimate and preventing the 2% that are not. Because good risk management isn’t only about preventing illegal activity, it is also about minimizing false positives. If the balance isn’t struck correctly, an escalating false positive percentage can compromise conversion rates.

Leading payment companies support operators by providing them with risk management and fraud prevention solutions that contains a full suite of customizable tools. This includes:

• Highly configurable rules engine. For example at Nuvei we have over 200 combinations and parameters in our rules engine
• Multiple layers of protection which prevent chargebacks before they happen and mitigate the damage of those that do
• Tokenization technology that stops players’ financial data falling into the wrong hands
• Integrated eKYC and AML compliance technology that adapts to the different regulations of countries and regions, making it easier to enter new markets
• A compliant 3DS2 solution which is designed to bring more security to online payments without compromising user experience

We know that bad actors are always going to look to exploit the system, and that may include targeting betting platforms that are not as rigorous when it comes to its anti-fraud commitments. Where esports betting platforms are looking to take a strong stance in this area, working with payments companies that have a proven heritage in delivering safe betting for players and operators is key.

What should the esports industry as a whole be doing better to reduce the risk of fraud?

First and foremost the industry needs to come together, behind a single strategy to counteract the threat of fraudulent actors. We should be lobbying for more structure around esports betting tournaments and safer overall practices.

We should also be holding the industry to the highest possible standards of KYC and other fraud prevention and explaining this isn’t going to impact conversion – long term growth must be built on a foundation of doing things the right way.

Finally, in-game betting is now being seen as the next frontier to win in esports betting. Do payments play a role in this as well?

From a payment company perspective, if we are talking about live betting we are talking about a smooth deposit and payout process. Players need to be able to access their funds immediately when they deposit, platforms need one click deposit methods for returning players, they need smart deposit amount suggestions, they need high conversion rates of card transactions, and they need alternative payment options as a second preference if their card transaction is declined.

And they need all of this still needs to be executed in a secure manner that is compliant with regulations. Again it’s the payments companies with a strong heritage in traditional sports betting than are going to able to provide the best quality to support esports betting platforms make that leap to a seamless but safe in-game player experience.